English, Article, Journal or magazine article edition: Federalism and the Soft Budget Constraint Yingyi Qian; Gerard Roland

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Federalism and the Soft Budget Constraint
Author
  • Yingyi Qian
  • Gerard Roland
Physical Description
  • preprint
Notes
  • October 1997, (Forthcoming, American Economic Review) The government's incentives to bail out inefficient projects are determined by the tradeoff between political benefits and economic costs, the latter depending on the decentralization of government. Two effects of federalism are derived: First, fiscal competition among local governments under factor mobility increases the opportunity costs of bailout and thus serves as a commitment device (the "competition effect"). Second, monetary centralization, together with fiscal decentralization, induces a conflict of interests and thus may harden budget constraints and reduce inflation (the "checks and balance effect"). Our analysis is used to interpret China's recent experience of transition to a market economy. (JEL E62, E63, H7, L30, P3) Key Words: Soft Budget Constraints, Federalism, Decentralization, Competition, China
  • RePEc:wop:stanec:97045
Language
  • English
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